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FSA delays decision on commission disclosure

The FSA has this week announced that it will not be mandating commission disclosure in the near future, but will continue to undertake further work on the commercial general insurance market to consider possible inefficiencies before determining whether mandatory disclosure is required.

The FSA’s announcement of ongoing work follows the publication of a report commissioned by the FSA and completed by CRA International. The report looked at whether there is a lack of transparency in the commercial insurance market that may give rise to a substantive consumer detriment and, if so, whether mandatory disclosure was a justifiable response to any market problems.

The CRA report suggested that the costs of mandating commission disclosure would outweigh the benefits. However, the FSA still has concerns around transparency and wider market efficiencies and therefore will continue to review the matter further over the coming year. In particular, the FSA is keen to ensure that conflicts of interest are managed efficiently.

FSA work next year will include:

Measures aimed at improving the quality, clarity and consistency of key disclosures made by firms to their commercial customers. This will include disclosures relating to commission, status, service, and conflicts of interest.

Thematic work on conflicts of interest. This work will consider the extent and nature of conflicts that arise from commission paid by insurers to intermediaries.

The publication of a Discussion Paper inviting views on the cost-benefit analysis of mandatory disclosure. This will take into account questions on the wider issues of market efficiency and fairness along with the potential benefits from having more standardised disclosures.

The FSA will also be investigating ways to raise commercial customers' awareness of the value of commission information disclosed by intermediaries.

These measures will only be considered within the context of commercial general insurance. The timing will take into account any developments in Europe regarding the review of the Insurance Mediation Directive.

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